17.30 (CLOSE): The London market struggled to make headway today after a credit rating downgrade in France sparked further uncertainty in Europe.

The FTSE 100 Index, which rallied more than 2 per cent on Monday amid optimism that the US will avoid the so-called fiscal cliff, closed 10.4 points higher at 5748.1.

While Moody's decision to downgrade France was widely expected by the markets, it highlighted the ongoing struggles across the single-currency bloc and the London market spent most of the session in the red.

Progressed stalled: The credit downgrade of France impacted the London Stock Exchange, which just yesterday saw the FTSE 100 rally by over two per cent.

And traders were anticipating a quiet week in the US due to the Thanksgiving holiday, which will see markets close on Thursday and early on Friday.

The pound was higher than the euro at 1.24 due to the volatility in the region, while sterling was also higher than the US dollar at 1.59.

The move, which will form one of the world's largest natural resources firms, has faced months of setbacks. Xstrata shares were 29.8p higher at 986.6p.

Most of the corporate news came from outside the top flight, with low-cost airline Easyjet topping the FTSE 250 Index risers board after profits at the carrier climbed to a record £317 million as higher sales offset a further £182 million surge in fuel costs.

Shares were up by more than 6 per cent, ahead 39.5p to 692p, after the company also doubled its annual dividend payout to shareholders to 21.5p a share.

Further restructuring efforts at Premier Foods were welcomed by investors today, even though it will mean the loss of around 900 jobs and the closure of two bakeries. Its shares gained 3 per cent, up 2.5p to 94.8p, as the City welcomed efforts by the company to offset intense competition.

Enterprise Inns, the UK's biggest pub landlord, was up 0.5p at 67.3p after it revealed a 12 per cent slide in profits to £137 million in the year to September 30.

The Solihull-based group revealed some hope as it reported a smaller decline in like-for-like sales of 1.2%, compared to 4.3% in the previous year.

Embattled home repair and insurance group Homeserve convinced investors it was recovering from mis-selling allegations after it said customer complaints had fallen by 42 per cent.

While the cost of overhauling the group kept UK half-year profits flat at £26 million after an 11 per cent drop in revenues to £134.5 million, shares still rose 11 per cent or 24.9p to 247.9p.

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Embattled home repair and insurance group Homeserve convinced investors it was recovering from mis-selling allegations after it said customer complaints had fallen by 42 per cent.

While the cost of overhauling the group kept UK half-year profits flat at £26million after an 11 per cent drop in revenues to £134.5million, shares still rose 5 per cent or 12p to 235p.

12.15:

Eurozone debt worries are weighing on the Footsie, which is down 13.6 points at 5,724.1 shortly after midday.

Moody’s has put the brakes market rally by downgrading France's credit rating, according to Alastair McCaig of IG.

'After both European and US markets had started the week in such strongly positive mood, the overnight news that Moody’s has downgraded French sovereign debt from Aaa to Aa1 has put an end to that.

'This has certainly dampened sentiment, although in reality the bond markets had anticipated this following on from January's downgrade by Standard & Poor’s.

'Traders will be keeping a close eye on European banks that might be affected by the French downgrade, particularly on yesterday’s news that Spanish banks had increased their bad debt ratios to 10.7 per cent.'

Anita Paluch of Gekko Global Markets said: 'While France has lost its pristine triple A rating due to negative growth prospects and an uncertain fiscal outlook among other factors, the impact of Moody’s latest move hasn’t been that huge.

'Europe is giving some of the gains from yesterday’s rally back; the fall isn’t too dramatic though.'

10.30:

Financial markets are in the red today as investors absorb the news that a second credit agency has downgraded France's AAA rating.

Moody's cut France's debt rating from AAA to AA1, triggering stock falls ahead of a meeting of eurozone finance ministers later today to discuss Greece's next tranche of aid.

The FTSE 100 was down 20.6 points at 5,717 while France's CAC 40 dropped 10 points to 3,429.5 and Germany's DAX was off 4.9 points at 7,118.9.

Low-cost airline easyJet topped the FTSE 250 risers board after profits at the carrier climbed to a record £317million as higher sales offset a further £182million surge in fuel costs.

Its stock was up 34p at 688p after the company also doubled its annual dividend payout to shareholders to 21.5p a share.

Further restructuring efforts at Premier Foods were welcomed by investors today, even though it will mean the loss of around 900 jobs and the closure of two bakeries.

The shares gained 3.75p to 96.5p, as the City welcomed efforts by the company to offset intense competition.

8.30: The FTSE 100 has opened 26.4 points lower at 5,711.2 as a downgrade of France's credit rating dampened sentiment and fuelled profit taking.

Moody's stripped France of its prized triple-A status late last night, cutting the sovereign credit rating by one notch to AA1 with a negative outlook. It cited an uncertain fiscal outlook and deteriorating economy.

The move follows Standard & Poor's downgrade of France to AA+ at the start of this year.

While widely expected, the action by Moody's injected some caution into the market, sending the euro slightly lower against the US dollar.

Eurozone finance ministers are expected to give a tentative go-ahead today for the handing over of €44billion in emergency loans to Greece.

The ministers and the boss of the International Monetary Fund, Christine Lagarde, will also discuss how to reduce Greek debt and provide two extra years of external financing to help the country achieve its fiscal targets.

Meanwhile, debt-laden Portugal has passed the sixth quarterly review of its performance under an EU/IMF bailout, opening the way for payment of the next €2.5billion installment of its loan despite growing economic risks.

The FTSE 100 closed up 132.07 points or 2.4 per cent at 5,767.66 yesterday, recovering some of last week's steep falls on optimism that divided US lawmakers will strike a deal on the 'fiscal cliff' and avert recession in the biggest economy in the world. (Read more about the fiscal cliff here.)

Stocks to watch today include:

Glencore: Shareholders in miner Xstrata are expected to give the green light to a long-awaited $31billion takeover by commodities giant Glencore, paving the way for one of the largest tie-ups in the sector to date.